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September 27, 2022

Better Markets Supports SEC Proposal to Modernize Outdated Regulations That Act as Loopholes in Today’s Capital Markets

Better Markets filed a comment letter in response to the Securities and Exchange Commission’s proposal to modernize outdated Rule 15b9-1 to ensure more brokers and dealers are required to become members of a national securities association.

Why It Matters. The increasing usage of algorithmic, electronic trading by high frequency trading firms has fundamentally changed how the markets operate. Every day, these firms trade heavily in the markets for their own accounts and as part of their regular business. They have grown tremendously in recent years, now representing roughly 50% of the trading volume in the U.S. equities markets and 48% of the volume in the U.S. Treasury interdealer market. Despite the significant role these firms play in today’s capital markets, they are not subject to oversight or regulation by a self-regulatory organization, such as FINRA due to an outdated SEC regulation last amended in 1976 – Rule 15b9-1.

What We Said. High frequency trading firms play such a dominant role in our capital markets that more oversight and transparency into their activities is clearly necessary and appropriate. As technology changes the way markets operate and the manner in which people trade, the regulations that govern our capital markets must evolve accordingly. These firms have been able to keep their market activity relatively hidden from view for decades due to an outdated proprietary trading exclusion in Rule 15b9-1 that could not have contemplated these algorithmic, electronic trading strategies when the rule was last amended in 1976. Rule 15b9-1 was originally conceived and amended to accommodate limited cross-exchange trading activity by on-floor traders and regional specialists at a time when physical trading on the floor of the exchanges still dominated the markets. It is clear that that markets have outgrown the original intent of Rule 15b9-1 and is no longer consistent with the public interest and the protection of investors.

Bottom Line. Better Markets supports the Commission’s proposed rule to modernize regulation of our capital markets in accordance with the Securities Exchange Act; ensure market participants performing similar functions are regulated similarly; and increase transparency within the U.S. equities and Treasury securities markets.

Read our full Comment Letter here or click the button below.

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